Why a Short Sale is Better than a Foreclosure

Why a Short Sale is Better than a Foreclosure

1. Regarding any future Fannie Mae Loans for a primary residence:

• Foreclosure- A homeowner who loses a home to foreclosure is ineligible for a Fannie Mae backed mortgage (FHA insured) for a period of 5 years.
• Short Sale- A homeowner who successfully negotiates and closes a short sale will be eligible for a Fannie Mae (FHA insured) backed mortgage after only 2 years.

 

2. Regarding any future Fannie Mae loans for a non-primary residence:

• Foreclosure- An investor who allows a property to go to foreclosure is ineligible for a Fannie Mae (FHA insured) back mortgage for a period of 7 years.
• Short Sale- An investor who successfully negotiates and closes a short sale will be eligible for a Fannie Mae (FHA insured) backed investment mortgage after only 2 years.

 

3. Regarding any future loan with any mortgage company:

• Foreclosure- On any future 1003 Loan Application (Standardized and Required Loan Application), a perspective borrower will have to answer YES to question C, in section VIII, that asks "Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?" This will affect all future interest rates.
• Short Sale- There is no similar declaration or question regarding a short sale on the Standardized and Required Loan Application.

 

4. Regarding credit score:

• Foreclosure- Scores may be lowered anywhere from 150 to over 300 points. Typically, this will affect credit scores for over 3 years.
• Short Sale- Only late payments on mortgage will show, and after sale, mortgage will be reported as "paid or negotiated". This will lower credit scores as little as 50 points, if all other payments are being made. A short sale's effect can be as brief as 12 to 18 months.

 

5. Regarding credit history:

• Foreclosure- Foreclosure will remain as a public record on a person's credit history for 10 years or more.
• Short Sale- A short sale is not reported on a credit's history. There is no specific reporting item for "short sale." The loan is typically reported as "Paid in full and settled."

 

6. Regarding current employment:

• Foreclosure- Employers have the right, and are actively and regularly checking the credit of all employees who are in sensitive positions. A foreclosure, in many cases, is grounds for immediate reassignment or termination. Again, this is usually only the case with sensitive employment positions.
• Short Sale- A short sale is not reported on a credit report, and is, therefore, not a challenge to employment.

 

7. Regarding future employment:

• Foreclosure- Many employers are requiring credit checks on all job applicants. A foreclosure is one of the most detrimental credit items an applicant can have, and, in most cases, will challenge employment.
• Short Sale- A short sale is not reported on a credit report, and is, therefore, not a challenge to employment.

 

8. Regarding deficiency judgments:

• Foreclosure- In 100% of foreclosures (except in states where there is no deficiency) the bank has the right to pursue a deficiency judgment. California is a no deficiency state, except on hard money, non-purchase loans.
• Short Sale- In some successful short sales, it is possible to convince the lender to give up the right to pursue a deficiency judgment, even hard money deficiencies, against the homeowner.

 

9. Regarding deficiency judgment amount:

• Foreclosure- In a foreclosure, the home will have to go through a REO process if it does not sell at auction. In most cases, this will result in a lower sales price, and a longer time to sell in a declining market. This will result in a higher possible deficiency judgment.
• Short Sale- In a properly managed short sale, the home is sold at a price that should be close to market value, and, in almost all cases, will be better than a REO sale, resulting in a lower deficiency amount.

 

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GARRIGUSREAL ESTATE
Foreclosure Agent/REALTOR & Short Sale Specialists
SERVING SOUTHERN CALIFORNIA
Coldwell Banker Kivett-Teeters Associates

GarrigusRealEstate@yahoo.com
www.GarrigusRealEstate.net  <--- Check out our website for useful info and tools!
Devona Garrigus / DRE License # 01844441

IMPORTANT DISCLOSURE in compliance with the FEDERAL TRADE COMMISSION ("FTC") MORTGAGE ASSISTANCE RELIEF SERVICE ("MARS"): Before using this service, consider the following information - Coldwell Banker Kivett-Teeters Associates are not associated with the government and our services are not approved by the government. Seller acknowledges that the Broker/Agent is not qualified to provide financial, legal or tax advice regarding short sale transactions. Therefore, the seller is advised to obtain professional tax advice and consult independent legal counsel immediately regarding the tax implications and advisability of entering into a short sale agreement with their lender/servicer. If you stop paying your mortgage, you could lose your home and damage your credit rating.